Scotiabank will receive common and preferred shares based on its equity stake and gain the right to appoint board members in Davivienda’s combined operations. Credit: JHVEPhoto/Shutterstock.

Canadian financial services company Scotiabank has signed an agreement to transfer its banking operations in Colombia, Costa Rica, and Panama to Davivienda.

In return, Scotiabank will acquire a 20% ownership stake in Colombia lender Davivienda, which caters to more than 24.6 million clients.

The transaction is expected to streamline Scotiabank’s focus on the North American corridor and Latin America, while offering a chance to invest in a business with a better management team.

This deal includes a mutual referral agreement, allowing Scotiabank to continue supporting its clients through Davivienda’s network.

Scotiabank will receive a mix of common and preferred shares, reflecting its equity stake, and will have the right to appoint board members in Davivienda’s combined operations.

Scotiabank international banking group head Francisco Aristeguieta said: “With this agreement, we advance our execution plan towards sustainable and higher returns across our International Banking markets.

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“Davivienda is a proven operator which, through the combined entity, will deliver more scale and become an important partner in supporting our Global Wealth Management and Global Banking and Markets businesses in Colombia and Central America.”

Scotiabank will take an after-tax impairment loss of roughly C$1.4bn ($974m) in the first quarter of 2025 in association with the deal.

This is estimated to lower the Canadian lender’s Common Equity Tier 1 (CET1) ratio by nearly 10-15 basis points.

Additionally, the bank projects further loss of C$300m at closing, due to cumulative foreign currency translation losses.

Upon closing, Scotiabank’s investment in Davivienda will be accounted for as an associate investment, with a projected CET1 ratio benefit of around 10-15 basis points, mainly from the decrease in risk-weighted assets.

The completion of the deal is anticipated in around 12 months from the signing date, contingent on regulatory clearance.

In 2023, Scotiabank introduced Scotia Smart Investor, a new tool offering clients greater control over their investments. Available through the Advice+ platform, it provides AI-driven recommendations and personalised advice in real-time.